Wednesday, August 10, 2011

Bank of England Inflation Report: Forecasts are Cut

According to the Bank of England’s quarterly inflation report released today, UK economic growth is likely to remain sluggish due to continuing squeeze on households’ real incomes. As a result, consumer prices growth rate is expected to be rather moderate: in the medium term the central bank sees inflation a little below the 2% target level.

The central bank believes that inflation would peak around 5% this year before falling to 1.8% during the next 2 years. The GDP growth pace forecast for 2011 was reduced from 2.5% (May estimate) to 2.0%.

British monetary authorities underline the necessity of keeping the policy very loose in 2011 and 2012 as the global economy is surviving difficult times.

The BoE notes that the euro zone debt crisis affects Britain's economic recovery, though these risks are hard to quantify, so they aren’t taken into account in its forecast. It’s also necessary to understand that the report was accomplished before the recent volatile moves of the market, so the forecasts don’t reflect the slump of equities and commodity prices seen so far. As a result, UK economy is even in worse shape than it’s presented in the report.